For upgrading iLife you just need to run the iLife installer, it will automatically update the existing software assuming it's still in the Applications folder. If not then it will put the new software in Applications and your old software will also remain in place. Then you can just drag and drop the new Apps over the top of the old ones (assuming they weren't in the Applications folder.
The nice thing about Mac software in comparison to PC software which we're both used to, is that everything for the application is within one folder rather than scattered to the wind. That one folder is actually the application icon (which is a cunningly disguised folder). If you delete the icon, you have pretty much uninstalled the application (there'll be some keychains and perhaps a database sitting in Library). So installing, uninstalling, upgrading, on a Mac is very easy and clean.
As to the OS upgrade. I've never done one yet, but I'd just be running the installer and letting it upgrade my current installation rather than doing a format and re-install. Just me, but I don't see much likelihood for problems. If you've backed up your Home folder and any applications you want to keep (mine fills two 60GB iPods) then you're good to go (just in case of problem).